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According to the Chinese Ministry of Industry and Information, the country will in future reduce overcapacity in sectors such as steel, coal, cement, glassmaking and aluminium through the stricter enforcement of environmental, safety and energy efficiency standards.

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A draft policy document published on the ministry website on August 13, reported by Reuters, said the plans included financial levers that would allow lenders to extend loans to help companies restructure while cutting off funding for poorly performing enterprises targeted for closure.

Firms that failed to comply with new energy efficiency targets would be given six months to rectify and would be closed if they failed to make progress. Those that continued to exceed air and water pollution standards would be fined on a daily basis and in serious cases ordered to shut.

The document said authorities would cut off power and water supplies, and even demolish the equipment of firms that fail to meet environmental and safety standards. Facilities could also be sealed off to prevent them from going back into operation.

The ministry also repeated a previous pledge to implement differential and punitive power pricing policies to force firms to improve standards.

China, the world's second-largest economy, has identified overcapacity as one of its key challenges and it has already pledged to close 45 million tonnes of annual steel capacity and 250 million tonnes of coal production, but has fallen behind on its targets.